We have made significant progress in four major areas related to protein dynamics, folding, and function. (1) Water transport through channels. From a theoretical and simulation study of the simplest molecular channel, a carbon nanotube, we could demonstrate a mechanism of water transport through water channels such as aquaporin-1, with burst-like kinetics, and concerted water motion (Hummer et al., Nature, 8-Nov-2001). (2) Theory of single-molecule experiments. Atomic force microscopes and laser tweezers are increasingly used to probe the structure, folding, and function of single molecules. We derived a rigorous relation between these non-equilibrium measurements and the thermodynamics of binding and folding (Hummer and Szabo, PNAS 98, 3658, 2001; Commentary by Jarzynski, same issue). (3) Ligand binding and hydrophobic effects. We mapped the binding affinity of nonpolar probes to a fusion active intermediate of HIV-1 gp41 by using a combination of theory and simulation. In addition to reproducing crystallographically identified inhibitor-binding sites, we could suggest an extension of existing inhibitors that should enhance binding (Siebert and Hummer, Biochemistry, submitted). (4) Protein and peptide folding. By using microsecond simulations of small peptides in solution, we could directly compare loop-closure kinetics of models to triplet-quenching measurements. This provides molecularly-detailed descriptions of early events in protein folding (Yeh and Hummer, in preparation).